Generally, most income you receive is taxable. But there are some
situations when certain types of income are partially taxed or not
taxed at all. A comprehensive list is available in IRS Publication 525,
Taxable and Nontaxable Income.
Some common examples of items that are not included in your income are:
- Adoption Expense Reimbursements for qualifying expenses
- Child support payments
- Gifts, bequests and inheritances
- Workers' compensation benefits
- Meals and Lodging for the convenience of your employer
- Compensatory Damages awarded for physical injury or physical sickness
- Welfare Benefits
- Cash Rebates from a dealer or manufacturer
- Tax Exempt Interest from municipal bonds and tax exempt bond
mutual funds. Although this interest is usually not taxed it must be
reported on line 8b of Form 1040 or 1040A.
Examples of items that may or may not be included in your income are:
- Life Insurance. If you surrender a life insurance
policy for cash, you must include in income any proceeds that are more
than the cost of the life insurance policy. Life insurance proceeds
paid to you because of the death of the insured person are not taxable
unless the policy was turned over to you for a price.
- Scholarship or Fellowship Grant. If you are a
candidate for a degree, you can exclude amounts you receive as a
qualified scholarship or fellowship. Amounts used for room and board do
not qualify.
All other items, unless specifically excluded by law, must be
included in your income. This income may be in a form other than cash.
For example:
- Bartering. Bartering is an exchange of property
or services. The fair market value of goods and services exchanged is
fully taxable and must be included on Form 1040 in the income of both
parties.
These examples are not all-inclusive. For more information, visit
the IRS Web site at IRS.gov to view or download Publication 525 from
the Forms and Publications section or call 800-TAX-FORM (800-829-3676).
Remember that for the genuine IRS Web site be sure to use
.gov. Don't be confused by internet sites that end in .com, .net,
.org or other designations instead of .gov. The address of the official
IRS governmental Web site is www.irs.gov.
